Holiday outlook bleak for Wal-Mart, Kohl's

NBC News and wire reports

Thursday, 14 Nov 2013 | 5:49 PM ETNBC News

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This holiday season may not be one of joy for some big retailers as the aftermath of the recession—low job growth and higher payroll taxes—has lower-income shoppers struggling to make ends meet and cautious about splashing out.

Wal-Mart forecast a disappointing Thanksgiving-to-Christmas season, saying it expects sales to be flat—after reporting its third straight quarterly decline in U.S. comparable sales because of fewer shopper visits.

And Kohl's, which also posted lower quarterly sales on Thursday, said it would spend more on advertising to get shoppers into its stores during the holiday season that is traditionally crucial to retailers' annual profits.

"The retail environment, both in stores and online, remains competitive," Mike Duke, CEO of Wal-Mart, said in a statement. "Wal-Mart has aggressive plans to help our customers enjoy the holiday season, and there is no doubt that we plan to win for our customers and shareholders throughout the holidays."

Doug McMillon, Wal-Mart International president and CEO, said that sales in the third quarter, which ended in October, were weighed down by a "challenging global economy" and currency headwinds, which made Wal-Mart goods more expensive in some countries.

And he also said he expects the fourth quarter to be challenging. "The slow-growth macroeconomic environment is persisting through the first month of the new quarter," McMillon said.

Over at Kohl's, a mid-tier department store chain that also serves a price-conscious clientele, the mood was bleak after the company said its comparable sales fell 1.6 percent last quarter.

Kevin Mansell, Kohl's chairman, president and CEO did not account for the weak quarterly results in the company's earnings report, saying only, "As we enter the holiday season, we believe we are well-positioned from a merchandise content and inventory perspective to gain market share. We have increased our marketing spending and improved its impact and reach in order to drive higher traffic to our stores and on-line."

But later, on the call with analysts, Mansell was more frank. "Let's be clear: we were disappointed in the third quarter results," he said. He noted that Kohl's e-commerce business only grew 15 percent for the quarter, which is lower than historical growth.

"If we had not replatformed (e-commerce) , we were not going to be able to reach our full potential online," Mansell said. "It's not a fourth quarter initiative, its' a next three years initiative that just went through. We knew it was going to hurt our online business."

Wal-Mart said comparable sales at its U.S. stores, its biggest unit, fell 0.3 percent in the third quarter ended on Oct. 31, in part because of price reductions on televisions and sluggish sales of toys and packaged foods. Analysts had expected flat U.S. comparable sales, which include those online and at stores open at least a year.

Business was also slower than expected at its Sam's Club chain and in key markets like Canada and Mexico, but the company's e-commerce operation and small-format stores performed well.

Wal-Mart caters to lower-income customers, who have been reluctant to spend this year because of higher payroll taxes and slow job growth. The retailer and analysts do not expect that caution to abate this holiday period.

"That low-end consumer is just not willing to step out and buy those discretionary items," said Edward Jones analyst Brian Yarbrough.

To compete against retailers such as Amazon.com and Target, Wal-Mart began its holiday sales earlier than last year and is advertising more heavily. Wal-Mart U.S. Chief Executive Officer Bill Simon told reporters that the company would also "invest" in prices, its term for cutting them.

But some analysts were not convinced that would be enough. "Lowering prices no longer drives an offsetting increase in traffic which has been the lifeblood of Wal-Mart," said Ken Murphy, a senior vice president at Standard Life Investments.

Wal-Mart lowered its full-year forecast and now expects earnings of $5.11 to $5.21 per share, compared with an earlier outlook of $5.10 to $5.30. The company said it still expected sales to rise 3 percent to 5 percent in fiscal 2015, which begins in February.

Earlier this week, the world's largest retailer announced it will begin its in-store Black Friday sales at 6 p.m. on Thanksgiving Day, two hours earlier than last year. In addition, Wal-Mart.com will begin offering Black Friday sales on a limited number of items Thursday morning—likely before the turkey is even in the oven.